I’ve read about half a dozen pieces trying to explain what a derivative is... so far I’ve come to the conclusion it is a piece of paper with printing on it that some people erroneously think is worth something...
Moreover, the 100 million $2 tickets out there are "worth" $202 million, not "worth" 100 million times $202 million.
A derivative at its base.
Just like it sounds.
It is an instrument (a contract if you will) thats value is based or “Derived” from something else. That instrument can be traded with others.
Basically it’s a bet, and there’s a huge appetite for creating and making bets.
I could create a contract on when Trump or Rick Santorum will bow out of the Presidential race. That contract has a value, and the value changes based on events and therefore, there is money to be made and lost along the way. There are people that will trade these contracts.
When we talk about financial markets there are thousands of ways to chop up the data/numbers and create contracts that are “derived” from what is called the “Cash Market” or real price.
It’s insanity.
And at the same time, there are hundreds and hundreds of Billions of Dollars making these bets.
actually, a derivative is a paper representing entries on an electronic ledger representing entries on portions of uncountable electronic ledgers that in effect are tied to someone’s agreement to pay someone something at an appointed date and time and exists as an electronic entry